A useful quantitative tool for assessing a firm's efficiency
is the domestic resources cost (DRC). The DRC is the cost of the
domestic resources (factors) that are necessary to save or earn
one unit of foreign exchange by producing a unit of value added
(valued at border prices). Unfortunately the data collected in
this study is not detailed enough to permit use of the DRC
methodology. A crude indicator of firm-level performance has been
used instead, namely the labour surplus, or value added per
worker.

Table 8.5 (pp. 238-9) provides information on surplus
generation in the sample firms in the metals and engineering
sector for the years for which data was available. Themi has the
worst performance in the sample. Even in nominal terms it had a
negative value added and hence negative surplus and productivity
in 1985 and in 1990. In real terms the situation is even more
alarming. NEM's performance has been rather mixed. The firm's
real value added per worker declined from TSh50 000 in 1983 to
TSh5 500 in 1986. It has since recovered and rose to TSh85 800 in
1990. The best performers are Afrocooling and Matsushita, which
show rising surplus levels and real value added per worker,
especially after 1985.

But when Table 8.5 is read alongside Table 8.4 the emerging
picture is rather confusing. Trends in export performance in the
most productive firms have not been encouraging. Afrocooling's
exports has declined between 1989 and 1991, Matsushita's exports
declined from US$1 045 000 in 1986 to a low of US$31 000 before
rising marginally to US$107 000. Export earnings for the worst
performers rise between 1986 and 1991.

The overall picture that emerges is that, despite an
increasingly favourable macropolicy environment for export
enterprises and modestly successful attempts to acquire and build
technological capabilities within Afrocooling, Matsushita and
NEM, these relatively efficient non-textile firms are losing
their export market shares.

The textile industry in Tanzania has, in the 1980s, expanded
its productive capacities. Despite the expansion, output has been
declining, from 93.0 million square metres of cloth in 1980. when
industry capacity was 200 million, to 62.5 million in 1992, when
capacity had reached 252 million 5 square metres of cloth per
annum (see Table 8.7). The poor performance of the industry has
been attributed to lack of foreign exchange for inputs and
spares, frequent interruptions in the supply of electricity and
water, aged plant and machinery, inadequate credit facilities, an
inappropriate or hostile macroeconomic environment which gives an
unfair competitive edge to textile imports, unhelpful rules and
regulations, etc. (see e.g. Mbelle, 1992).

The export performances of the individual firms covered in
this study have also not been very good. Three firms which are
apparently the frontier firms in the industry (Canvas, Friendship
and JV), recorded average capacity utilization rates of 80 per
cent, 49.9 per cent and 45.3 per cent respectively in 1990.
Polytex and Tanganyika had utilization rates of less than 30 per
cent.

A logical conclusion of the above trend is that proper export
incentives, a realistic exchange rate, a competitive pricing
regime and a stock of technological capabilities are essential
but not sufficient conditions for sustainable export growth.
Other factors certainly matter. As pointed out earlier,
significant advances have been achieved in establishing an
exchange rate regime that would serve as an incentive to
exporters. However, a number of anomalies persist in the
regulatory environment which urgently need to be rectified if
successful exporting is to take place. One major problem
mentioned by all firms in the sample is that of cumbersome,
bureaucratic and lengthy procedures for licensing, access to
credit and foreign exchange, and export documentation. Some
exporters have to travel long distances from the regions to Dar
es Salaam simply to register themselves. Those based in Dar es
Salaam have to commute from one corner of the city to another
seeking approval from various institutions such as the Ministry
of Lands and Natural Resources, the Ministry of Industries and
Trade, BET, the NBC (National Bank of Commerce), the Investment
Promotion Centre (IPC) and the Bank of Tanzania (BOT). There are
also still tight bureaucratic bottlenecks in the administration
of foreign exchange allocation, resulting in long lead times for
imports. Such long and cumbersome procedures involving many
institutions impose implicit extra costs (in terms of delays,
etc.) on exporters. Delays could be even more disastrous for risk
exports such as fresh fruits and fish.

All this suggests the need to establish some kind of an export
centre that would offer at one location a package of relevant
export services such as registration, licensing, proofs of
ownership, export advice and export promotion. Delays in
allocating foreign exchange could be substantially reduced if the
OGL (Open General Licence) and import support funds were merged
and their allocations were issued under similar conditions, and
if forex facilities were made available through commercial banks
only where letters of credit could be issued against their
equivalent value in Tanzanian Shillings.

Supportive infrastructure is another important prerequisite
for successful exporting. Expensive, sporadic and unreliable
transport and communications are a serious impediment to the
exporters of non-traditional goods. Reliability of delivery is
also critical. High transport costs contribute greatly to the
lack of competitiveness of exports. Poor telecommunications and
constant power and water interruptions also raise the costs of
doing business and compound the problem of lack of information.

There are serious weaknesses in the existing supportive
institutional infrastructure as well. A survey of selected
non-traditional exporters carried out in 1990 revealed that seven
out of ten firms faced problems in accessing information about
markets or lacked skills in designing products, packaging and
controlling quality. Moreover, most of the exporters interviewed
were ignorant about the modalities of exporting to the PTA member
countries (Bagachwa et al., 1990). Some of these
deficiencies can be remedied by private agents as they build up
experience but others require the establishment of specialized
and informed service institutions. As already pointed out, some
relevant institutions exist in Tanzania but these seem to provide
only limited support as far as technical services, training,
information and export standards are concerned.

Successful exporting requires a conducive macroeconomic
setting and a functioning infrastructure. Once these are in
place, adequate incentives and the right capabilities and support
institutions are required. Proper export incentives, a realistic
exchange rate and a competitive pricing regime are essential in
increasing the profitability of exports. The dynamic process of
acquiring technological capabilities through learning, adaptation
and improvements will be the key to efficiency and productivity
gains over time. With the appropriate superstructure of
specialized and informed institutions, there will be
opportunities for exporters to get the necessary advice on market
outlets, product quality, standards, packaging, etc.
Policy-makers must seriously address these needs if they wish to
make a positive contribution to the promotion of non-traditional
exports in Tanzania.

The preceding discussion presents two main challenges facing
Tanzanian manufacturing firms seeking international
competitiveness in exports. The first challenge is to acquire the
capabilities to search actively for relevant and flexible
technologies, secure the best sources and negotiate the best
possible terms of acquisition. The second challenge is how to
accelerate the process of technological mastery. There are two
main actors in this game of technological capability acquisition,
the firms and the government.

The role of government will certainly be crucial in creating
conditions conducive to exploiting new technological
opportunities. One of the key policy areas in which government
should intervene is the development of the human resource base
needed for industrial development. Training is an important
source of capability acquisition. Government should provide both
the literacy base in the general population and the formal
training needed for industrial training. In-firm training, either
on the job or in a more formal framework, would then supplement,
but cannot substitute for, such training. Infirm training is
bound to be limited. The government will therefore have to
subsidize firms or provide training facilities directly, or
assist in securing foreign technical assistance.

The other area for government intervention is the provision of
an environment in which flexible adjustment of production
structures in the face of changing demand conditions is made
possible. The provision of efficient infrastructure in the form
of functioning water and electricity supplies and efficient
telecommunications and transportation facilities would reduce
firms' operating costs significantly. Government should also
facilitate access to information about, and the acquisition of,
technologies by domestic firms. It should promote contacts
between domestic firms and foreign technology suppliers. Support
in these efforts might significantly reduce search costs.

Most of the firms in Tanzania are still too small and
ill-equipped to make any meaningful expenditure on R&D. The
state, while stimulating R&D activities among industries,
will initially have to mobilize and pool resources and then to
decentralize such resources to individual firms. The examples of
NEM and Themi have shown that government can play an important
role in stimulating technological activity, by intervening more
directly and taking the initiative. The state can also assist in
the early phases of investment by carrying out feasibility
studies, identifying products and production processes,
estimating market potential and securing equipment suppliers. It
is important, however, that government should involve potential
entrepreneurs when making such decisions.

There are also some technological functions that cannot be
performed adequately in-house. As already pointed out, the
Tanzanian government has set up relevant institutions for
research and extension, quality control, design, training,
technology information and industrial standards. These
institutions' however' need to have adequate manpower and
financial resources if they are to perform their functions
properly.

Finally, provision of incentives in the form of protection for
strategic industries, which, for example, generate higher
externalities, use flexible or difficult technologies, or have
high linkages, will be necessary. Such protection, however,
should be industry-specific and properly phased.